Doomed banks

Nouriel Roubini, aka Dr. Doom, has been making headlines arguing that one of the consequences of the ongoing crises of capitalism is that more than 400 banks on the “critical list” may go bust this year.

The fact is, the latest FDIC Quarterly Banking Profile shows a 7 percent increase in the number of “problem banks” to 829 on 30 June 2010, up from 775 on 31 March 2010.

In general, banks included on the list have serious deficiencies with their finances, operations, or management that threaten their continued solvency. Once a bank is included on the list, they are subject to closer regulatory scrutiny. They can also expect to receive instructions from regulators about what steps must be taken to rebuild their financial strength.

It is also the case that, during the last quarter, the number of banks in the United States actually declined (by 104). Some of those (45) were due to failure, while the rest were due to mergers with other banks.

Actually, the number of banks has been declining for over 20 years. According to Craig Stahl,

Despite two major banking crises in the past two decades the vast majority of banks have not disappeared through failures but rather by mergers. Of the 7,328 banks that have disappeared since 1990, banking failures accounted for only 1,202 (16.4%) of the vanished banks.

The majority of assets in the banking industry are now concentrated in the largest institutions. The most recent numbers reported show that the there are 105 banking institutions with assets of $10 billion or greater. These 105 institutions, representing only 1.3% of the banks in the US control a staggering 78.4% of total banking assets, representing $10.4 trillion dollars. The remaining 7,725 banks have only 21.6% of total banking industry assets.

So, we are confronted with two tendencies within the U.S. banking industry: short-term crisis-induced bank failures, and the longer term concentration and centralization of financial capital.

The result of the combination of both tendencies is that we’re ending up with a banking industry that is quickly becoming Too Big to Succeed.